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Compound Interest, SMB-020

Tim invests $3000 in a term deposit account that adds 6.5% interest annually, calculated on the account balance at the end of each year.

The interest paid in the fourth year is

  1. `$221.16`
  2. `$235.55`
  3. `$3623.85`
  4. `$3859.40`
Show Answers Only

`B`

Show Worked Solution

`r=6.5% = 0.065`

`text(Using)\ \ FV=PV(1+r)^n :`

`text(Value after 3rd year)` `= 3000(1.065)^3`
  `= $3623.85`
 `text(Value after 4th year)` `= 3000(1.065)^4`
  `= $3859.40`

 

 `:.\ text(Interest paid in 4th year)` `= 3859.40-3623.85`
  `= $235.55`

`=>  B`